Apparently our insurers here in New Zealand are in a hurry. After four and a half years they want to get their earthquake claimants off their books as quickly as possible and this is done by ‘pushing’ for cash settlement. I can think of a number of plausible reasons as to why.
First of all, the longer the insurers wait the more expensive the reinstatement of our properties become. Prices for building materials have been on the rise and so are the costs of labor. A conservative estimate is that, since the initial earthquakes, the building costs have risen by some 30%. For this reason the long wait and delays have now come to bite the insurers financially. The delay strategy has become too costly.
Secondly there is a noticeable urgency of meeting the self-appointed deadlines. EQC set themselves 2015 as a deadline, IAG set June 2016 as their deadline. There is an internal need to their own promises. These self-appointed deadlines are now used as arguments for cash settling. Although many claimants would have wanted to have their claim settled earlier, today cash settlements are proving to be a less than satisfactory solution. Left to reinstate the damage themselves many have already discovered that a cash settlement leaves them out of pocket, nor do they want to run the risk that they will lose their insurance cover if they self-repair.
A third reason presented by the insurers, is that their clients want to move on with their lives and that their cash settlement offer facilitates just that. Of course, it is true, after four and an a half years claimants want to move on, but not at any cost. What has kept many Cantabrians from moving on with their lives is simply that they have been held hostage by their insurers. They have had to keep on arguing and negotiating with the insurers about the true nature of the damage to their properties and the costs associated with the reinstatement of their homes. Insureds expected to be put back into a position similar to where they were prior to the earthquakes. During these years many insureds have seen insurers turn initial rebuilds into repairs, and push ‘over-cap’ claims back to ‘under- cap’. The number of repeated and time consuming assessments on properties has many times reached outrageous numbers. Most Cantabrians experience the insurers as hardheaded negotiators, who have ignored the fact that most of their clients simply want to move on with their lives as soon as possible.
A fourth reason for the insurers to cash settle is to mitigate further damage to their public image as an industry. The behavior of the insurers towards their customers after the earthquakes has been far from respectful. It is very revealing that IAG customers called the local newspaper instead of their insurer to share their concerns about the fact that their insurer has set its mind to cash settle some 2000 outstanding claims. A substantial number of those insured called the Press anonymously as they didn’t want to have their names mentioned in fear of the repercussions it might have. Insurers know that the word is out that they are not to be trusted. Their customers know it and, as the word spreads, the general public will become more cautious in dealing with their insurance company as well. This will hurt the insurance industry in New Zealand.
What insurers thought “looked good” in the public eye failed to convince the people, at least those affected by the earthquakes. Not only did their initiative to cash settle upset their customers, it triggered an editorial in the Press under the wording “IAG must not exploit its power”. The earlier article that “IAG is dumping customers from the rebuild” was quickly followed the next day with another article in the Press by Ms. Rene Walker from IAG in an effort to mitigate the damage done. Too little and too late. The editorial was already written and printed.
It seems difficult for some corporates to act in a moral way, although most corporates are aware that contractual relationships involving two or more parties have a moral component. For this reason corporates showcase their mission statements, “Trust us we are doing the right thing!” These mission statements address the behavior of the company in the course of their business relationships. Call it a Business Code of Doing Ethics. Usually these codes have an internal and an external component. Internally it will address what is expected of its management and employees; externally it will address how the company will conduct its business in the outside world. Professionalism, respect, fairness, goodwill, non-discrimination, transparency, standards for product quality and product delivery, governance and management, communication, corruption, sponsorship and environment are all matters that are addressed in these company codes. How all these matters are addressed in practice is described in company policies, in their manuals and institutional provisions. Customer complaints for example can be dealt with internally but also through and an external provision like a Consumer Ombudsman. An industry as a whole may draft a code, like the Fair Insurance Code, with which participating insurers agree to comply. These contain an expose of the duties and obligations of and for the parties involved. Legal requirements and obligations overrule the moral prepositions upon which they are initially based. That is why public moral indignation with corporate manipulation and intimidation does not seem to affect corporate behavior in this country. It is not recognized as moral indignation anymore and insurers experience those who express their frustration “difficult customers”. At best, moral obligations have become a mere preamble to a frustrating legal maze of rules and requirements.
The introduction of a revised Fair Insurance Code in New Zealand will not convince nor work in favor of the customer if there is no commitment by the industry to adhere to an accepted and implemented moral code of behavior in doing business with their customers. Many of the insurance industry’s customers here in Canterbury have come to the conclusion that the industry lacks just that. To many insured their operations are still a reoccurring nightmare.
In this contribution I have attempted to demonstrate that in the case of this accelerated rush to cash settle outstanding claims in Canterbury, the insurance industry is predominantly self-serving and not working to benefit the insured. The insurers don’t like to pick up the ever rising building costs, they have to be seen to meet the deadlines they have set for themselves, they use the wrong arguments to convince/satisfy their customers and they are afraid that the public image of their industry as a whole is deteriorating. And now that a case against IAG has been brought to the attention of the OECD, the insurer is hurting the global interests of insurance business worldwide as well.
Big surprise and no wonder, insurers, that for many in Canterbury, a cash settlement is more of a threat than a ‘treat’. In the first instance a cash settlement may look good. But beware, on second thoughts it is not about you, the customer; cash settling is all about the industry. So far there are no morals involved; corporate self-interest seems to be the main driver: cash settle……..why be moral!